When the initial results of Technomic’s Top 500 Chain Restaurant Report were released last month, the biggest news story to emerge was Subway’s fall from its perch as the second-largest restaurant chain in the United States in terms of annual sales. Implied in that story was a trend many years in the making: Fast-casual sandwich chains have been looting Subway’s market share, as the giant brand’s franchise unit growth finally seemed to catch up to it and start cannibalizing sales.
Much has been made of Subway’s effect on the limited-service sandwich segment in the Top 500. In 2014, when Subway struggled with a 3.3% sales decline, it pulled the entire segment’s growth rate down to 1.8%, less than half the rates of limited service as a whole in 2014 and of the sandwich sector the year before. How well did fast-casual sandwich brands do? Exponentially better than quick service, as the chart below indicates:
The fast-casual sandwich segment’s 15.1% sales increase for 2014 is impressive on its own. But this one-year growth rate also exceeded the five-year compound annual growth rate recorded from 2009 to 2014, which shows fast casual still has all the momentum on its side. For the second consecutive year, Which Wich and Jimmy John’s were among the five fastest-growing fast-casual sandwich brands, with 23% and 18% sales gains, respectively, that closely matched their rates of unit growth.
The other chains in this fastest-growing group managed to record sales increases far ahead of their unit growth, suggesting significant improvements in their average unit volumes. Jersey Mike’s, for instance, recorded 30% sales growth in 2014, with a 20% gain in its unit count. Firehouse Subs increased sales by 25% and locations by 18%, while Pret a Manger recorded a 14% sales gain and a 5% jump in unit count.
Many of these fast-casual chains are growing rapidly, but they’re remaining nimble enough to get to trends quickly. Two trends Technomic expects to continue are barbecue-flavored sandwiches and menu innovation around crunchy textures. In the first case, Firehouse Subs’ Sweet Thai Chili Pork sandwich brought interesting, ethnic flavors to a pulled-pork sandwich and was a successful limited-time offer. It also created new texture profiles for sandwiches, such as its popular King’s Hawaiian Pork & Slaw item, which featured crunchy Hawaiian coleslaw. Which Wich menued a Rue Bourbon Shrimp Po’ Boy, which also added a lot of crunch, thanks to a third of a pound of breaded butterfly shrimp.
Subway was aware of these culinary currents as well, rolling out a BBQ Oven Roasted Chicken Melt and a Fritos Chicken Enchilada Melt, but those sandwiches weren’t enough to counter the brand’s problem of being overbuilt and losing ground in the value perception game. Its fast-casual competitors appear able to sustain their breakneck growth rates and keep taking Subway’s market share, so the brand might have to reconsider continued unit growth at the expense of its average sales per store.